Strategic Planning and Execution. Certification link.

Pillars of Strategy Execution: Analysis Formulation Implementation

Strategic Analysis
Strategy Formulation & Implementation
Strategy Implementation : 4A model.
Guest Speakers
Final Assignment

1. Strategic Analysis

1.1 Four Steps

Identify Mission and Values.
Analyze the Competitive Environment.
Analyze Competitive Position.
Analyze and Recommend Strategic Actions.

Questions (External)	Tools
What market(s) is the firm in and who are the players in these markets?	Competitor Analysis, Competitive Position
What are the major trends impacting the industry?	Environmental Analysis
Is this an attractive market? Are there barriers to competition?	Five Forces Analysis
How is the competitive structure of the market likely to evolve?	Competitive Life Cycle Analysis

Questions (Internal)	Tools
What is the firm’s mission and values? What do others expect of the firm?	Stakeholder Analysis
What are the firm’s unique resources and capabilities? How sustainable is any advantage from these assets?	Capabilities Analysis
Can the firm leverage these assets across markets so as to improve their position in a market?	Portfolio Planning Matrices
How should the firm position itself in the market relative to its rivals?	Strategic Maps

Questions (Decision making under uncertainty)	Tools
How can we best improve our position, i.e. create more value, in our competitive environment? Scaling? Entry? Innovation? Acquisition?	Hypothesis Testing, Payoff Matrices, Real Options Analysis, Acquisition Analysis, Scenario Planning
What strategic actions do we recommend going forward?	Strategic Analysis!
What are the underlying assumptions of this recommendation? Does it meet our tests?	Hypothesis Testing
How are competitors likely to react to these actions?	Payoff Matrices
Does it make sense in future worlds we envision?	Scenario Planning
Does it provide strategic flexibility?	Real Options Analysis
Does the value created by these actions exceed the opportunity cost?	Acquisition Analysis

(Prof describes these types of questions, which require a comprehensive and reasonable response in an extremely short period of time, as the highest order of strategic thinking.)

Strategist’s Toolkit: Hypothesis Testing:

(1) Frame option as a hypothesis; (2) Identify core assumptions; (3) Conduct thought experiments; (4) Collect data and test assumptions.
Core Assumptions : (1) Value Test; (2) Execution Test (if is feasible); (3) Scale Test; (4) Defensibility Test (can be imitate?).
Thought experiments : (1) What do you know ? (2) What do you not know, but could? (4) What do you not know, and cann’t?
Related to the thoughts in The Lean Startup.

1.2 Strategy Research

Sources: Annual reports; Analyst and consulting reports; Interviews and surveys; Press releases and news articles; Big data; Taxes, patents, and other publicly required filings.
Challenges: Little/much/conflicting/proprietary/expensive information. We will never have enough information.
Devise a research plan. Balance needed and desired data.

1.3 Strategy Analytics

Industry Structure Measures

Compound Annual Growth Rate (CAGR) - Measures the rate at which an industry grows over time.
Elasticity of Demand - Refers to the sensitivity of customers within a given market to price changes.
Cross Price Elasticity - Refers to the sensitivity of the price of one product to the price of another, used to consider the threat of substitutes within an industry.
Concentration within the Industry
- Concentration Ratio (CR4) - A measure of the market share of the four largest firms in an industry.
- Herfindahl-Hirschman Index (HHI) - The sum of the squares of market shares within an industry, used to measure market concentration.
Economies of Scale - Understanding how large-scale production releases costs within the industry, often calculated using cost data and regression analysis.

Financial Performance Measures

Profitability
- Earnings Before Interest and Taxes (EBIT) - A measure of earnings before interest and taxes are accounted for.
Return Ratios
- Return on Assets (ROA)
- Return on Equity (ROE)
- Return on Sales (ROS)
Price Earnings Ratio - The ratio of a firm’s current share price to its per-share earnings.
Discounted Cash Flows (DCF) - A valuation method that estimates the attractiveness of an investment opportunity.
Market to Book Ratio - Compares a firm’s market value to its book value.
Tobin’s Q - A measure that replaces the book value with the replacement value of assets to reflect market expectations versus the current position of an organization.

Organizational Performance Measures

Revenues - The income generated from the sale of goods or services.
Costs - Such as cost of goods sold.
Growth - Both top-line (revenue) and bottom-line (profit) growth within the company.
Market Share - A metric for the success of the organization.
Leverage - The degree to which a company has taken on debt.
Turnover - The rate at which employees are leaving the company, which can indicate the company’s ability to retain talent.
R&D Intensity - R&D expenditures divided by sales, indicating the company’s strategic direction towards innovation.
Advertising Intensity - Advertising expenditures divided by sales, indicating the company’s strategic direction towards marketing.

Inference Tools

Five Forces Analysis - Analyzes the competitive intensity of an industry.
Capabilities Analysis - Assesses the capabilities of a company.
Break-even Analysis - Determines the sales volume needed to cover all costs.
Decision Trees - Evaluates the payoffs associated with different strategic options.
Sensitivity Analysis
- Tornado Charts
- Monte Carlo Simulation
Regression Analysis - Identifies relationships between sets of data.
Data Visualization - Techniques and tools to help visualize data for making inferences and recommendations.

2. Strategy Formulation & Implementation

2.1 Strategy Formulation

Views:

Top-Down : traditional view.
Bottom-Up (Emergent) : emerges over time, response to changing conditions.

The Strategic War Room :

Storyboards. (panels in graphic novel)
Involvement of organization members. (broad involve of members)
Involvement of experts.
Input from diverse perspectives.
Collaboration.
Iteration.

Rapid Prototyping (manufacturing design build) quickly identify and correct shortcomings in products or organizational changes.

Encourage different thinking.
Pilot tests and experiments.
Quick failures (rapidly determine what works, what doesn’t)
Used in instructional design, Corporate initiates.

Design Thinking systematic approach to problem solving. What would be different if managers thought more like designers ? Empathy, Invention, Iteration.

	BUSINESS	DESIGN
Underlying Assumptions	Rational and objective; all share the same reality	Emotional and subjective; each have a unique reality
Method	Analysis aimed at proving one “best” answer	Experimentation aimed at iterating toward a “better” answer
Process	Planning	Doing
Decision Drivers	Logic; run the numbers!	Emotional insight: understand experience!
Values	Control and stability; discomfort with uncertainty	Pursuing novelty; dislike the status quo
Levels of Focus	Strategic or tactical	Back and forth between high level and particular

Business Model Canvas : Focus, Flexibility, Transparency: (1) Costumer segments; (2) Value propositions; (3) Channels; (4) Customer relationships; (5) Revenue streams; (6) Key activities; (7) Key resources; (8) Key partnerships; (9) Cost structure.

2.2 Corporate Governance

Governance is the way we organize and operate in order to help us accomplish our purpose. Effective governance boosts performance; minimize misconduct.

System of checks and balances.
Set of processes (the “way thins are done”).
Involves the structure of an organization, but more than structure.
Involves risk management.
How to deal with external pressures.
Importance of trust and culture.

Key Themes:

Long-term orientation.
Effective stakeholder management.
Focus on risk management.

2.3 The Human Factor

Behavioral Theory : Bounded (not perfect) rationality; Satisfying (not optimal); Performance assessment (better than benchmark or some reference points).
Institutional Theory : Mimetic isomorphism (organizations tend to mimic each other).
Resource Dependence Theory : Power dynamics.

2.4 Common Strategy Execution Mistakes

Failure to understand your own organization.
Failure to understand how you are performing.
Failure to understand the context.
Hyper-focus on growth for growth’s sake.
Governance mismatch.
Competency traps.

3. Strategy Implementation

“Five percent of the challenge is the strategy, Ninety-five percent is the execution.” - CEO Nissan/Renalt.

Goes beyond implementing a plan to include organizational design, culture, processes, technology, and human resource management.
Is an enduring process, not a single decision or action, and results from a series of integrated decisions and actions over time.
Requires disciplined investment in four key organizational domains - The 4A Model of Strategy Execution.

	Resources - Human	Resources - Organization
Energy - Kinetic	Alignment	Agility
Energy - Potential	Ability	Architecture

Alignment: This involves creating consistency and collaboration within the organization, with a focus on delivering value in the marketplace. It requires all the different components of the organization to align around the strategy and work together to achieve performance.
Ability: Many organizations lack the necessary talent and leadership to execute a strategy effectively. Developing a strong leadership bench and ensuring a robust talent system are essential for building the skills and abilities needed to execute the strategy.
Architecture: The infrastructure of an organization, including information systems, processes, reward systems, and organizational structure, plays a vital role in strategy execution. Different strategies may require different architectures, and it is important to build the right platform to support the execution of the strategy.
Agility: Strategies need to adapt and change over time, and organizations must be agile enough to respond to these changes. Creating a capacity for organizational learning, adaptation, and adjustment is crucial for maintaining agility and ensuring long-term success.

3.1 Alignment

External alignment - organization operates in a manner ‘fit for purpose’ to support the market strategy.
Internal alignment - processes, practices, structures work together to create a mutually reinforcing system.
Leadership alignment - consistency of perspective and effort toward a common strategic intent.

Keys to Achieving Alignment

Clearly articulated strategic intent.
- There is NOT one best strategy.
- Treacy & Wiersema
Shared expectations for high performance.
- Cultures may reinforce other values.
- Grounded in practice and initiatives.
Accountability for results.
- Drucker: “What gets measured gets done.”
- Caution: unintended consequences.

Strategy Mapping. Metrics & Initiatives.

3.2 Ability

The Talent Syndrome: firms often face talent shortages.

Keys to Execution Ability

Identify strategic talent pools
- Two dimensions : General <-> Unique; Operational <-> Strategic.
Develop a robust talent system:
- Useful and Usable.
- Mutually reinforcing.
- Produce Unique & Strategic talents.
Vitality - build the talent pipeline
- Commitment Engagement Accountability.
- Business Perf : Top leaders - Line Managers - Key Talent.

3.3 Architecture

Organization Architecture : managing information and authority. Getting the right design.

Two extremes : (1) Underdeveloped organization (insufficient infrastructure); (2) Bureaucratic organization.
Design Principles:
- Strategy “enacts” environment → (complexity + dynamism = uncertainty).
- Structure helps manage uncertainty and information required to make decisions.
- Curvilinear relationship between uncertainty and bureaucracy.
(1) Flatter, simplified structures
- Enpower decisions close to action - Google to Alphabet.
(2) Streamlined processes & workflow
- Eliminate waste & improve value add
(3) Information access and connectivity
- “Inform” real-time decisions

3.4 Agility

Why is agility so difficult?

Uncertainty and ambiguity - what makes it difficult, makes it important.
Inertia versus momentum - flat footed or sprinting.
Leader adaptability - too slow or too fast.
Culture of risk aversion - avoid falling into the execution trap.

Keys :

Organizational Learning. (see right image)
Leadership unity. Transactive memory : A knowledge system shared by a group, in which each member of the group has a known area of expertise.
Resource fluidity. Adjustable, and could reallocated.

4. Guest Speakers

Shannon Smith, CEO Abundant Power.

Byrne Murphy, DigiPlex.

Concept is always ahead of the capital markets in the product life cycle. The key to keep your eye on is what’s the goal.
Revisit annually, If the goal remains realistic, Stick to it and find the talent that is more talented than you are to help you get there.
You have to be regionally dominant.
Two tools important : (1) People skills; (2) Communicating skills.

Carolyn Miles, Save the Children (Nonprofit).

Tightly tied to the mission.
The engagement (of people from all levels) in the process of putting together a strategy.
Three goals (1) end the preventable deaths of kids under five; (2) get every children into school and learn; (3) change the way the world thinks about violence against children.

Rick Edmunds, Strategy& PwC

Challenges : (1) The world is changing; (2) A hard view in trade off.
Help refine strategy : (1) help them articulate why they are uncomfortable with their strategy; (2) forcing trade offs.
Build strategy : (1) trends in the marketplace and potential big disruptions in the marketplace; (2) What are the few capabilities that a company has that distinguishes it.
Strategy consulting : (1) Go outside in first; (2) how would company operate differently?

Bob Hugin, Celgene.

Dynamic, great companies are incredibly self aware. Understanding yourself, understanding the outside world and then putting a strategy.
Ownership is incredibly important.